What role does infrastructure play in your portfolio?
Mark Hector, First State Super portfolio manager, infrastructure and real assets (29): “The role of infrastructure and real assets is to provide long-term, stable, inflation-linked returns with both an optimal net return and low fee focus, including regular distribution yields. The portfolio is expected to exhibit both defensive characteristics in challenging market conditions as well as some growth performance in more bullish markets.”
Ron Boots, head of infrastructure Europe, APG Asset Management (6): “Infrastructure contributes unique investment characteristics to a multi-asset portfolio. Further to being a diversifier, it enhances returns and brings stability through long-term and stable cashflows with lower volatility and correlation to other asset classes.”
Will Devenney, head of infrastructure debt, Europe, Legal & General Investment Management (12): “The infrastructure debt platform… forms a crucial and growing part of the LGIM Real Assets portfolio. With a substantial portfolio in the UK, and a growing platform in North America, we are harnessing pension wealth and delivering strong infrastructure improvements through investments in sectors that demonstrate a positive ESG contribution.”
Christian Fingerle, chief investment officer, ACP, part of Allianz Global Investors (4): “Allianz has an alternatives quota of circa 20 percent for its proprietary investment portfolio. Infrastructure is a large and fast-growing segment within alternative investments, which fits well into the Allianz portfolio.”
Nik Kemp, head of infrastructure, AustralianSuper (15): “Infrastructure continues to be the ballast in the portfolio. Its role is to provide stable returns throughout the investment cycle while also generating outperformance associated with the illiquidity of the asset class.”
Dale Burgess, senior managing director, Infrastructure and Natural Resources, Ontario Teachers’ Pension Plan (10): “We principally make sole or joint-control investments directly into private infrastructure companies to deliver growing, inflation-linked cashflows over the long term.”
Is infrastructure delivering the performance you expected of it?
Ulrik Weuder, head of global direct investments, ATP (20): “Yes, infrastructure is delivering the expected results. In the early days, there was a clear outperformance but the asset class has now become more mature.”
Kristian Fok, chief investment officer, Cbus (32): “We have been an investor in infrastructure since the 1990s and, over the long term, infrastructure has delivered steady, resilient returns. This holds true when we look through periods like the GFC and even the covid-19 pandemic – infrastructure assets hold their value or recover value quickly through shocks, because of their essential nature.”
Spokeswoman, LDI overseas alternative investment team, Hanwha Life Insurance (21): “Our performance expectation is net IRR in Korean won of between 3.5 and 4 percent for debt investments and a net IRR of 7 to 9 percent in qualified infrastructure equity investments. At the moment, infrastructure is generating lower performance than our expectation due to FX expenses and a drop in base rate.”
Ron Boots, head of infrastructure Europe, APG Asset Management (6): “Historically we have seen it delivering a high single-digit return with above-average dividend yields and earnings stability. But it probably hasn’t been an especially effective inflation hedge.”
Carolyn Hansard, director ENRI, Teacher Retirement System of Texas (36): “The best test of the uncorrelated returns and downside protection was during the covid-19 market volatility. Our infrastructure portfolio performed in line with our expectations, where we experienced only minor valuation impacts.”
Nik Kemp, head of infrastructure, AustralianSuper (15): “Yes, generally it is. In a normal year, we have been generating double-digit returns, while during the covid-19 crisis the volatility in the returns has not been as great as in other asset classes.”
What’s your biggest concern regarding your infrastructure portfolio?
Kristian Fok, chief investment officer, Cbus (32): “Our portfolio is in good shape, but we are obviously concerned about the impact of covid-19 on our airport assets. We are also focused on climate resilience and doing quite a lot of work to ensure that our portfolio can transition to a low-carbon future. Finally, safety considerations for workers are at the forefront of our board and investment committee agenda.”
Mark Hector, First State Super portfolio manager, infrastructure and real assets (29): “Our biggest concern is that inappropriate risk premiums may be applied by competitors in a challenging future environment. This arises from concerns associated with covid-19 as well as a ‘lower-for-longer’ environment that was a growing theme in the lead-up to covid-19.”
Spokeswoman, LDI overseas alternative investment team, Hanwha Life Insurance (21): “We prefer PPPs and regulated assets because of their stability. However, those deals are in high demand and low supply. Thus, we have few investment opportunities – or the expected return rate is getting lower.”
Nik Kemp, head of infrastructure, AustralianSuper (15): “The pandemic has highlighted that not all infrastructure sectors behave in a consistent way. We can see certain parts of the transport sector being hit very hard (ie, airports) while others are somewhat resilient (ie, certain toll roads and ports).”
Ron Boots, head of infrastructure Europe, APG Asset Management (6): “The uncertainty around the impact of covid-19 and the time needed to recover and return back to original trend … Furthermore, consumer behaviour might change and will change – for example, the way we travel and work. Attracting and retaining talent to manage and expand infrastructure portfolios will probably stay a concern, with investor enthusiasm for infrastructure continuing to rise.”
How important are direct or co-investments in your infrastructure portfolio, and will this change over the next two years?
Nik Kemp, head of infrastructure, AustralianSuper (15): “They continue to be important. Investing directly provides much more control over the portfolio and allows us to be nimbler in buying and selling specific assets. This allows us to increase or reduce our exposure to different sectors more quickly than through funds. Further, with base rates compressing, it is likely that returns will edge lower in the future and, as such, the considerably lower cost to invest becomes more important.”
Christian Fingerle, chief investment officer, ACP, part of Allianz Global Investors (4): “Direct and co-investments represent the major part of ACP’s infrastructure portfolio [ACP is part of AllianzGI]. Co-investments help us to manage our portfolio composition and are complementary to our direct strategy. In the last few years ACP has invested €1 billion to €2 billion annually in infrastructure assets, both through direct and indirect investments, and we will continue to invest further in these areas.”
Ulrik Weuder, head of global direct investments, ATP (20): “Our strategy is a direct investment strategy with strong partnerships. Our legacy fund-based investments are slowly running off.”
Infrastructure group, Korea Investment Corporation (40): “Direct and co-investments historically have generated superior returns and we plan to increase our allocation to direct and/or co-investments going forward.”
Mark Hector, First State Super portfolio manager, infrastructure and real assets (29): “First State Super’s direct investments in particular – but also fee-free co-investments – have been a vital part of our strategy in recent years and we expect this to continue into the future.”
What’s your one piece of advice for a GP looking to manage your capital?
Nik Kemp, head of infrastructure, AustralianSuper (15): “Build trust with the LPs. If your LP doesn’t trust you, the relationship will end. To get this you need to be transparent on how you generate returns, why you are able to get better returns than the next GP and how your interests are truly aligned with the LP’s.”
Christian Fingerle, chief investment officer, ACP, part of Allianz Global Investors (4): “Funds need to bring added value to our portfolio structure and have to provide us with something we cannot access through our direct investment strategy. Co-investment opportunities are very important for us. Fund managers also need to prove they meet Allianz’s high ESG standards, which are an integral part of every investment decision.”
Kristian Fok, chief investment officer, Cbus (32): “We are open to GPs who bring sector expertise and unique investment angles, particularly for investing abroad. We are interested in bespoke platforms and separately managed accounts, but the fee proposition needs to be compelling. Lastly, we are mindful of GPs chasing higher-risk assets and characterising them as infrastructure.”
Infrastructure group, Korea Investment Corporation (40): “We caution GPs to be more prudent as we continue to witness rapid increases in fund sizes, with the fundraising periods between funds becoming shorter. We also witness fund terms becoming more GP-friendly as fund sizes increase. LP-friendly terms should be considered more proactively for those who continue to show support.”
Carolyn Hansard, director ENRI, Teacher Retirement System of Texas (36): “TRS views investments with GPs as a true partnership. As a partnership, we expect transparency and a deep understanding of GPs’ strategies and execution capabilities. GPs should reach out to us and let us get to know them long before they begin to raise a fund.”
Are you looking to increase your allocation to infrastructure over the next two years?
Ulrik Weuder, head of global direct investments, ATP (20): “ATP is always looking for the perfect match. That said, we are currently not looking to increase our exposure.”
Christian Fingerle, chief investment officer, ACP, part of Allianz Global Investors (4): “Infrastructure is and will remain an important asset class for Allianz, and we will continue to expand our investments in infrastructure. There is a very high demand for investment in existing assets and in the construction of new facilities, such as digital infrastructure.”
Kristian Fok, chief investment officer, Cbus (32): “Yes, we will be increasing our allocation to 13 percent opportunistically over time, which is an additional 2 percent from the previous year. But we are a patient investor. There is no pressure to deploy, particularly in the current market, which is expensive.”
Ron Boots, head of infrastructure Europe, APG Asset Management (6): “Our current strategic allocation target is set at 4 percent of AUM. It is expected that once we reach this target it will be increased further. Besides our positive experience as described, this is also driven by the ever-increasing role of private investment in infrastructure and our long-term sustainable investment strategy.”
Mark Hector, First State Super portfolio manager, infrastructure and real assets (29): “Our strategic asset allocation to infrastructure and real assets is expected to stay fairly consistent over the next couple of years, with some selective further deployment.”
Carolyn Hansard, director ENRI, Teacher Retirement System of Texas (36): “Infrastructure resides within the 6 percent trust allocation to energy, natural resources and infrastructure. The infrastructure investments are expected to take an increased share of the capital allocated to this portfolio.”